AER LINGUS FACING EXCEPTIONALLY TOUGH MARKETS - A statement out from Aer Lingus this morning says it is carrying out a pretty big review of its business and an order for planes it has with Airbus. It has also warned that the losses it makes this year will be well below the lowest expectations the market has already forecast for the airline. It says its trading environment is exceptionally tough, and that it is progressively deteriorating this year. At the moment this is being worsened by the outbreak of swine flu.
Justin Urquhart Stewart, of Seven Investment Managers in London, says the Aer Lingus trading statement is very 'poor'. He says the airline is in a very difficult situation in a very difficult market. Total revenue per passenger year on year fell by 9.6%, fares fell and passenger numbers also fell. However, he says the Aer Lingus statistics have to be put into perspective and given the declining world economy it is no surprise to see the Aer Lingus reductions. He predicts the company's balance sheet and cash flow will come under more pressure.
He also says the Aer Lingus statement could be copied by other airlines everywhere around the world. A combination of what has happened to the world economy, most recently with the outbreak of swine flu, all adds to the pressures on airlines. He says that airlines' short haul operations have always faced tough competition, but now their long haul services - usually a mainstay for certain airlines - are coming under further pressure because of a lack of demand.
When any form of flu pandemic is mentioned, there is an immediate negative impact on airlines and tourism and other leisure areas. Shares in airlines, cruise companies and travel companies all suffered yesterday. The analyst says the most recent falls are made worse because of the poor shape of the world economy.
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MORNING BUSINESS - Asian stocks slipped for a second day today on worries about the potential economic fallout from swine flu. Companies like pharmaceutical firms and producers of face masks got a boost on an expected increase in demand, while airlines extended losses on worries the swine flu will cause a sharp reduction in travel around the world. Japan's Chugai Pharmaceutical, which makes flu drug Tamiflu, rose 4.3%. Hong Kong's Cathay Pacific Airways dropped 2.3%. Yesterday BA was the biggest faller on the FTSE 100 and Lufthansa fell the most in Frankfurt.
*** Australia's biggest lender, National Australia Bank, has reported a 9.4% fall in profit for the first six months of its financial year. It has also detailed a dividend cut, higher bad-debt charges and it warned investors that worse was to come. Australian banks had managed to avoid the banking disasters seen elsewhere in the world, but as Australia enters a recession the banks face slower mortgage and business lending, higher funding costs and growing bad debts as unemployment rises.
*** 96% of the shareholders in BCM, or Babcock Brown Capital, which owns over half of Eircom, have voted to cut ties with its bankrupt parent company Babcock and Brown. They voted to change BCM's name to Eircom Holdings. The company is the subject of an unsolicited offer from a number of former Babcock executives, which Eircom has said it is opposed to.
*** On the currency markets, the euro hit its lowest level in seven weeks against the yen, a fall of 1% this morning, as fears about a swine flu outbreak prompted investors to sell riskier currencies. Elsewhere it is trading at $1.30 cents and 89.2 pence sterling.
